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Russell's Josh Cohen testifies in DOL/SEC hearing on target date funds
June 18, 2009 — Today Russell Investments' Senior Consultant Josh Cohen testified in an important hearing about target date funds before the Department of Labor (DOL) and Securities & Exchange Commission (SEC).
Below you will find a few key themes from Cohen's testimony on criteria for plan sponsors selecting and monitoring target date funds. You can also view a complete transcript.
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- Know how much equity exposure each target date fund includes at retirement.
With recent market declines, many target date fund investors were surprised by significant losses—largely due to high amounts of equity exposure in funds for those near or in retirement.
Russell believes equity exposure should be more limited at retirement. In fact, our standard target date fund glidepath includes a 32% allocation to equities at and during retirement.
- Understand the objective of target date funds—and measure risks accordingly.
We believe a key objective of target date funds is to meet an investor's income replacement goals at retirement. We believe risks should be measured in terms of not meeting that goal.
- Monitor and evaluate target date fund performance.
Right now, there is not one performance number that will tell a plan sponsor whether a target date fund is a good solution for their plans' participants or not. Fiduciaries need to use "prudent investor" standards to determine the appropriateness of a solution.
Russell has developed a performance measurement tool that attempts to answer the question of how well a target date fund family has done at its task—specifically how it built retirement wealth over time compared to other alternatives. More information about this approach will be released soon.
- Consider target date funds' objectivity in manager selection.
Many target date funds are manufactured by investment management firms that choose to use only their proprietary funds. However, it's unlikely that one provider could be best-in-class in every asset class over an individual's entire working career and retirement.
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For more information you may contact James or Gerry:
Target date fund investing involves risk, principal value is not guaranteed at any time, including at the target date. Target date funds are not a complete investment program. The target date is the approximate date when investors plan to start withdrawing their money. The allocation of each Russell Fund's assets is based solely on time horizon and will become more conservative over time until approximately the year indicated in the Fund's name, at which time the allocation will remain fixed.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
First used: June 2009
USI-4189
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